Fed officers confused flexibility in taper tempo on the final political session

(Bloomberg) – Federal Reserve officials at their last meeting stressed the need for flexibility in how quickly they will scale back their bond purchase program and timing of rate hikes before data shows an acceleration in inflation.

"Participants stressed that maintaining the flexibility to implement appropriate policy adjustments based on risk management considerations should be a guiding principle in policy implementation," said a protocol released on Wednesday by the 2nd Open Market Committee.

"Various participants noted that the Committee should stand ready to adjust the pace of asset purchases and raise the target range for the Federal Funds Rate earlier than currently expected if inflation continues to be above what is consistent with the Committee's objective," it says in the protocol.

At the meeting, the FOMC decided to keep rates near zero and slow the pace of purchases under the $ 120 billion per month bond purchase program launched last year in order to complete the process by mid-2022.

Since then, inflation has worsened. Commerce Department's October figures released on Wednesday showed prices rose 5% over the past year, the highest rate of inflation since 1990, marking restoration of some of the millions of jobs lost in the pandemic.

Inflation concerns have led some Fed officials – including outgoing Vice Chairman Richard Clarida, Governor Christopher Waller, St. Louis Fed President James Bullard, and his San Francisco colleague Mary Daly – to argue that it should be appropriate could discuss speeding up the tapering process when the FOMC next meets on December 14-15.

Analysts saw other policy makers join this camp.

"Given the latest data suggesting fourth quarter GDP growth could reach 6.5% annualized, we expect more civil servants to jump on board," said Paul Ashworth, chief US economist at Capital Economics . "The FOMC has clearly woken up to the realization that if inflation goes down a bit, it is likely to stay above target for a long time to come."

The minutes showed that officials "generally continued to assume that inflation would drop significantly in 2022" while "many participants cited considerations that might suggest that increased inflation might prove more permanent".

Completing the rejuvenation earlier would allow officials to raise interest rates sooner if deemed necessary to keep inflation in check. Officials were equally divided in September over the need for a rate hike next year or 2023. A new “dot plot” of their quarterly forecast will be released at next month's Fed meeting.

Fed chairman Jerome Powell said Monday in the White House after President Joe Biden put him at the helm for another four years, saying policymakers will “use our tools to keep the economy and jobs strong support and prevent higher inflation ”. solidify. "

(Updates with analyst responses in the eighth paragraph. Corrected an earlier version, removing the reference to "last month" in the first paragraph.)

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